Traders had been hoping the Fed chairman, Bernanke, would give some indications during his speech to the Bundesbank, the German central bank, yesterday about the Fed’s next move. Not only Bernanke avoided the topic of interest rate, he instead talked about something else – the need for countries gloabbly to cooperate toward economic stability.

Yet, the Dow rose 180.54 points, or 1.38 percent, to 13,308.39. The Standard & Poor’s 500-stock index rose 19.79 points, or 1.36 percent, to 1,471.49, while the Nasdaq composite index rose 38.36 points, or 1.50 percent, to 2,597.47. The Russell 2000 index of smaller companies was up 12.46 points, or 1.62 percent, at 782.27.

Analysts pointed out that even though Bernanke didn’t say anything about interest rates, the Wall Street has a “feeling” that the interest rate cut is mandatory and the investors’ “confidence” in the cut has grown. This is yet again another classic example of how “perception” plays the major role in determining the short-term market direction. During the period of uncertainties, all the technical analysis and fundamental data are put into cold-storage.

Bonds fell as investors withdrew money to buy stocks, pushing the 10-year Treasury note’s yield up to 4.37 percent from 4.32. Generally the men on-the-street expects that the central bank would lower the overnight federal funds rate at least one-quarter of a percentage point, to 5 percent, at its meeting next week.

Ben Bernanke caution that the flood of cheap capital from abroad was likely to taper off in the decades ahead, possibly leading to higher interest rates, as countries like China save less and consume more. This leads some economists to believe that the flood of foreign money, some of it from investors seeking higher yields in the United States, contributed to the speculative bubble in housing prices and the explosive growth in high-risk mortgages that helped finance it.

Nevertheless the stocks markets globally still hope for the magic word from Feds and will definitely be relieve if Bernanke finally decides to cut the interest rate but if it doesn’t, another round of selloff will surely kicked in – only this time the magnitude will be enormous.

Other Articles That May Interest You …

• Bernanke Prepared to Act, Hint to Cut Rate?
• Chinese Banks adding fuel to U.S. Subprime Crisis
• The Man who can Change the Market’s Tone – Bernanke

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September 12th, 2007 by financetwitter

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